Morningstar Reports Hedge Fund Performance for April, Asset Flows Through March

Chicago, IL - 3 June 2013

Morningstar, Inc. (NASDAQ: MORN), a leading provider of independent investment research, today reported preliminary hedge fund performance for April 2013 as well as estimated asset flows through March. The Morningstar MSCI Composite Hedge Fund Index, an asset-weighted composite of nearly 1,000 hedge funds in the Morningstar Hedge Fund database, rose 1.2% in April and 5.1% year to date. Over the trailing 12 months, the index rose 8.0%.

“April saw global stocks and bonds rally, while commodity prices sharply declined,” Philip Guziec, alternative investments strategist at Morningstar, said. “The trending markets helped long-short equity and fixed-income strategies as well as momentum strategies.”

Global equity markets rallied in April driven largely by investors’ conviction that central banks will continue to provide excess liquidity. The Bank of Japan, for example, announced that it will pursue quantitative easing, doubling the country’s monetary base over the next two years. Rising Japanese stocks helped lift the Morningstar MSCI Asia Pacific Hedge Fund Index 2.1% in April. Expectations of more liquidity also pushed down interest rates, which benefited duration-sensitive fixed income securities. The Morningstar Long Short Credit Hedge Fund Index rose 1.0% in April. Its performance was also enhanced by a decline in correlations among securities to levels not seen since mid-2008, as evidenced by the CBOE’s SandP 500 Implied Correlation Indexes.

In contrast, relatively weak economic reports from China pushed down commodity prices, such as oil, gold, and silver. Funds in the Morningstar MSCI Directional Trading Hedge Fund Index, which trade both upward and downward price trends, were able to capitalize on these declines. The Morningstar MSCI Directional Trading Hedge Fund Index rose 1.4% in April. The worst-performing hedge fund index in April was the Morningstar MSCI Short Bias All Size index, which dove 2.6% as most stock markets rallied.

In April 2013, single-manager funds in Morningstar’s Hedge Fund Database lost $770 million in assets. Hedge funds in the Multistrategy category saw the greatest outflows in March, losing $1.1 billion. After multiple years of poor performance, the fund outflows continued for Systematic Futures hedge funds, which lost $780 million. Global Macro hedge funds gain the most assets, adding $958 million, followed by long/short equity strategies, which gained 331 million. Over the trailing 12 months, investors have pulled $6.0 billion in aggregate from hedge funds in the Morningstar database. About $4.8 billion were withdrawn from Managed Futures hedge funds alone over the same period, while $4.5 billion were added to Global Macro hedge funds.

April returns for the Morningstar MSCI Hedge Fund Indexes and March asset flows are based on funds that reported as of May 29, 2013. Hedge fund investors, managers, consultants, and advisors can access additional information through Morningstar Direct SM, the company’s global research platform for institutions.

Morningstar has approximately 11,000 hedge funds and funds of hedge funds in its database. Morningstar calculates hedge fund indexes by applying the MSCI Hedge Fund Index Methodology and Hedge Fund Classification Standard to Morningstar’s hedge fund database. These indexes demonstrate the performance of hedge funds to investors who have hedged their currency exposure back into U.S. dollars. The MSCI Hedge Fund Index Methodology classifies hedge funds by investment process, geography, and asset class. These indexes are not investible.

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